The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to:
* a company,
group or sometimes a division thereof, which engages in
offshoring business processes.
*
International business companies (IBC) or other types of
legal entities, which are incorporated under the laws of a jurisdiction, that prohibit local economic activities.
The former use (companies formed in offshore jurisdictions) is probably the more common usage of the term. In isolated instances, the term can also be used in reference to companies with
offshore oil and gas operations.
Companies from offshore jurisdictions
In relation to companies and similar entities which are incorporated in offshore jurisdictions, the use of both the words “offshore” and "company" can be varied in application.
The extent to which a jurisdiction is regarded as offshore is often a question of perception and degree. Classic tax haven countries such as
Bermuda,
British Virgin Islands and the
Cayman Islands are quintessentially offshore jurisdictions, and companies incorporated in those jurisdictions are invariably labelled as offshore companies. Thereafter, there are certain small intermediate countries or areas such as
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...
,
Singapore and
Mauritius (sometimes referred to as “mid-shore” jurisdictions) which, whilst having oversized financial centres, are not zero tax regimes. Finally, there are classes of industrialised economies which can be used as part of tax mitigation structures, including countries like
Ireland, the
Netherlands
)
, anthem = ( en, "William of Nassau")
, image_map =
, map_caption =
, subdivision_type = Sovereign state
, subdivision_name = Kingdom of the Netherlands
, established_title = Before independence
, established_date = Spanish Netherl ...
and particularly the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
, in commentary relating to
corporate inversion and the use of British Overseas Territories for this purpose. Furthermore, in Federal systems, states which operate like a classic offshore centre can result in corporations formed there being labelled as offshore, even if they form part of the largest economy in the world (for example,
Delaware
Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent ...
in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
).
Similarly, the term "company" is used loosely, and at its widest can be taken to refer to any type of artificial entity, including not just corporations and
companies, but potentially also
LLCs,
LPs,
LLPs, and sometimes
partnerships or even
offshore trusts.
Classifying offshore companies
Historically, offshore companies were broadly divided into two categories. On the one hand were companies which were statutorily exempt from taxation in their jurisdiction of registration, provided that they did not undertake business with persons resident in that jurisdiction. Such companies were usually called
International Business Companies, or IBCs. Such companies were largely popularized by the
British Virgin Islands, but the model was copied widely. However, in the early 2000s the
OECD launched a global initiative to prevent "ring fencing" of taxation in this manner, and many leading jurisdictions (including the British Virgin Islands and
Gibraltar) repealed their
International Business Companies legislation. But IBCs are still incorporated in a number of jurisdictions today including Belize, Seychelles, BVI
Anguilla and
Panama.
Separately from IBCs, there are countries which operate tax regimes which broadly achieve the same effect: so long as the company's activities are carried on overseas, and none of the profits are repatriated, the company is not subject to taxation in its home jurisdiction. Where the home jurisdiction is regarded as an offshore jurisdiction, such companies are commonly regarded as offshore companies. Examples of this include
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...
and
Uruguay. However, these tax regimes are not limited to conventional offshore jurisdictions: the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
operates on broadly similar principles in relation to taxation of companies.
Separately, there are offshore jurisdictions which simply do not impose any form of taxation on companies, and so their companies are de facto tax-exempt. Historically the best example of these countries were the
Cayman Islands and
Bermuda, although other countries such as the
British Virgin Islands have now moved to this model. These could arguably fit into either of the previous two categories, depending on the fiscal point of view involved.
To th
Offshore Companydefinition, applies five (non-cumulative) limiting conditions:
(1) The government in the country of incorporation does not levy an indirect tax on the OAC (however, the OSC must pay an annual fee to the government).
(2) Separate laws and regulations apply.
(3) The OSC doesn't have its own physical office (address), personnel, means of communication etc. This means that the OAC must have a representative (registered agent) and office address (registered office) in the county of the incorporation.
(4) The OSC must be managed and governed by (an employee of) a local trust or law office.
(5) There is an instance of elements that benefit anonymity such as bearer shares and no or limited filing obligations.
Characteristics of offshore companies
Although all offshore companies differ to a degree depending upon the corporate law in the relevant jurisdiction, all offshore companies tend to enjoy certain core characteristics:
* They are broadly not subject to taxation in their home jurisdiction.(UAE)
* The corporate regime will be designed to promote business flexibility.
* Regulation of corporate activities will normally be lighter than in a developed country.
The absence of taxation or regulation in the home jurisdiction does not exempt the relevant company from taxation or regulation abroad. For example,
Michael Kors Holdings Limited is incorporated in the British Virgin Islands, but is listed on the
New York Stock Exchange, where it is subject both the U.S. taxation and to
financial regulation by the
U.S. Securities and Exchange Commission.
Another common characteristic of offshore companies is the limited amount of information available to the public. This varies from jurisdiction to jurisdiction. At one end of the scale, in the Cayman Islands and Delaware, there is virtually no publicly available information. But at the other end of the scale, in Hong Kong companies file annual returns with particulars of directors, shareholders and annual accounts. However, even in jurisdictions where there is relatively little information available to the public as of right, most jurisdictions have laws which permit law enforcement authorities (either locally or from overseas) to have access to relevant information, and in some cases, private individuals.
In relation to flexible
corporate law, most offshore jurisdictions will normally remove corporate fetters such as
thin capitalisation rules,
financial assistance rules, and limitations on
corporate capacity and
corporate benefit
The interest of the company (sometimes company benefit or commercial benefit) is a concept that the board of directors in corporations are in most legal systems required to use their powers for the commercial benefit of the company and its members ...
. A number have also removed or watered down rules relating to maintenance of capital or restrictions on payment of
dividends. Beyond the common themes, a number of jurisdictions have also enacted special corporate provisions to try to attract business through offering corporate mechanisms that allow complex business transactions or reorganisations to occur more smoothly.
Uses of offshore companies
Offshore companies are used
for a variety of commercial and private purposes, some legitimate and economically beneficial, whilst others may be harmful or even criminal. Allegations are frequently made in the press about offshore companies being used for
money laundering,
tax evasion,
fraud, and other forms of
white collar crime. Offshore companies are also used in a wide variety of commercial transactions, from generic holding companies, to joint ventures and listing vehicles. Offshore companies are also used widely in connection with private wealth for tax mitigation and privacy. The use of offshore companies, particularly in
tax planning, has become controversial in recent years, and a number of high-profile companies have ceased using offshore entities in their group structure as a result of public campaigns for such companies to pay their “fair share” of Government taxes.
Detailed information in relation to the use of offshore companies is notoriously difficult to come by because of the opaque nature of much of the business (and because, in many cases, the companies are used specifically to preserve the confidentiality of a transaction or individual). It is a commonly held view that most uses of offshore companies are driven by tax mitigation and/or
regulatory arbitrage, although there are some suggestions that the amount of tax structuring may be less than commonly thought. Other commonly cited legitimate uses of offshore companies include uses as
joint ventures financing
SPVs, stock market listing vehicles, holding companies and asset holding structures, and trading vehicles.
Intermediate uses of offshore companies (i.e., uses which might be considered legitimate or illegitimate depending upon a particular person's view of legitimacy of
globalisation and tax planning) include uses as
investment funds and
private wealth holding vehicles.
Popularity of offshore company jurisdictions
In the three-year period from 2017 to 2019, the following jurisdictions saw the following numbers of new company registrations:
See also
*
Corporate inversion
*
Global sourcing Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include ...
*
Low-cost country sourcing
*
Offshore Financial Centres
*
Offshore bank
*
Offshore outsourcing
Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
*
Offshore software R&D
In software engineering, offshore custom software development consists in offshoring the software development process in a country where production costs are lower, thus decreasing budget spending.
Background Early days
Since the 1960s and t ...
*
Offshoring
*
Tax avoidance and tax evasion
*
Tax haven
*
Conduit and Sink OFCs
References
External links
Global Forum on Transparency and Exchange of Information for Tax Purposes, OECD
{{DEFAULTSORT:Offshore company
Offshoring
International taxation
Offshore finance
Legal entities
Types of business entity